Companies that still don't get the role of bonuses

by Odysseas Papadimitriou on April 10, 2009

BonusesFannie Mae and Freddie Mac are planning on paying out $210 million dollars in bonuses despite the fact that both these companies had to be seized by federal regulators so as to prevent dire repercussions across the economy.  Their failure has been one of the central low points to the economic devastation of this past year

James Lockhart, federal regulator for Fannie Mae and Freddie Mac, defended these bonuses for two reasons.  First, he suggests that the bonuses are needed because of the destruction wrought upon the company employees’ savings by the crash of their stock.  The scene for such workers is, of course, tragic, but we wonder if bonuses should go out to those who lost money in the stock market, then don’t we all deserve some of that cash?  The plight of the employees at Fannie Mae and Freddie Mac is hardly unique—it is the plight of every American hurt in this recession.  But of course, the average American doesn’t get government bailouts for the money that they’ve lost in the various markets—we pay for them.  When all is said and done, investment is a gamble.  In other words, the people at Fannie Mae and Freddie Mac gambled their life savings, like so many of us, and lost.  We don’t get a safety net, why should they?

Lockhart’s second argument concerns the retention of the crack team of employees at Fannie Mae and Freddie Mac.  Granted, many of the employees at these two companies were brought on board after the companies’ collapses.  We do not assume that we are giving bonuses to people who helped run the companies into the ground (though as the companies refuse to release the names of the execs who are getting the bonuses, who really knows for sure?).  However, what we do know is that Fannie plans to give a $1,000,000 bonus to each one of four top execs in order to keep them at their posts and that, thus far, the only rationale given for these bonuses is that, if they are not paid, company execs will look for work elsewhere.

We do not mind that the government is giving out taxpayer money to keep these necessary financial giants afloat—we understand the danger at least, of what might happen should they fail.  We also do not mind that these companies are paying out bonuses to people who are doing an exceptional job at this task.  What we do mind are the arguments that are being put forward as to why these execs deserve these bonuses;  we mind because no one has bothered to tell us what any of these people have done to save the taxpayers, their bosses, money.  What we want are performance based arguments and not simply a carting out of the same old tired arguments that such bonuses are expected, that they are assumed, or that they are mandatory.  We’ll pay to retain the corporate talent, just tell us what the talented have done for us.

As much as we’d like to hear such an explanation, we’re fairly sure that it won’t be coming any time soon.  Corporate America still seems to be operating under the assumption that the bonus is a guaranteed component of a base salary—an absolute disconnect from the expectations of the average taxpayer.  For the average American, who is now part owner of these companies, bonuses are meant to be a reward for great performance, and to differentiate the great from the mediocre performance or even the outright incompetent.  If Lockhart’s response is any indication, these companies are still thinking in their terms.  Perhaps it’s time they start thinking about those bonuses the same way that we do.


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